Retirees and other investors seeking reliable passive income are wondering which top TSX dividend stocks trade at undervalued prices right now and are good to buy for a self-directed Tax-Free Savings Account (TFSA) portfolio.
Outlook for dividend stocks in 2024
Owning stocks carries risks, as many dividend investors witnessed last year. Many top Canadian dividend stocks saw their share prices fall due to rising interest rates, rather than as a result of operational issues. The extent of the decline in several blue-chip dividend payers caught many income investors by surprise. Still, the moves also provided great opportunities to add to positions and secure attractive yields.
The negative trend started to reverse in the past couple of months and that could continue through 2024 if anticipated rate cuts by the Bank of Canada and U.S. Federal Reserve materialize. Several top Canadian dividend-growth stocks still look cheap, even after the recent bounce.
Enbridge
Enbridge (TSX:ENB) is a good example of a dividend-growth stock that might still be undervalued. The board raised the dividend by 3.1% for 2024. That is the 29th consecutive annual increase in the distribution. The company’s operations performed well last year, and management continues to expand the asset base to position the business for growth.
ENB stock trades below $49 at the time of writing. This is up from $43 in early October but still down from the $59 it fetched at the peak in 2022.
Investors who bought the bottom are already sitting on nice gains, but more upside should be on the way.
Economists broadly expect interest rates in Canada and the United States to fall in 2024 now that inflation appears to be under control. The central banks increased rates aggressively to slow the economy and reduce upward pressure on prices, but they have to be careful that they don’t push rates too high or keep them elevated too long and plunge the economy into a recession. Rate hikes take time to work their way through the system, and it is tough to know when to hit the brakes. However, reducing rates too quickly could lead to another inflation surge.
The current expectation among many economists is for rates to start to decline in the second half of this year. As rates fall, money should flow back into top dividend stocks, including Enbridge.
The company has a $25 billion capital program to drive revenue and cash flow growth. Enbridge is also working to wrap up its US$14 billion deal to acquire three natural gas utilities in the United States. These businesses provide steady rate-regulated revenue and come with growth opportunities.
Should you buy ENB stock now?
Another drop to $43 is possible if inflation starts to increase again in the next few months. The market is currently anticipating rate cuts in 2024, so a shift in sentiment could quickly send bond yields soaring again, and that would put renewed pressure on dividend stocks.
At the current price, however, ENB stock still looks cheap and offers a 7.5% dividend yield, so you get paid well to ride out any additional turbulence. If you are searching for passive income and have a buy-and-hold investing strategy, Enbridge deserves to be on your radar today.
